Labour finance spokesperson Barbara Edmonds says the Government’s removal of the Reserve Bank’s employment mandate ‘not in the best interest of Kiwis given the unemployment rate we’re seeing now’

Labour Party finance spokesperson Barbara Edmonds is "seriously considering" reintroducing maximum sustainable employment to the Reserve Bank's monetary policy mandate alongside inflation targeting.

In an interview with the NZ Herald published on Tuesday morning, Edmonds says she is “seriously considering” the idea of potentially bringing back a dual mandate which would mean the Reserve Bank has to target both inflation and maximum sustainable employment.

The Labour-NZ First government implemented the dual mandate in 2018, when then-Finance Minister Grant Robertson added supporting maximum sustainable employment. The current Coalition Government removed the employment mandate in 2023.

Edmonds told the Herald it was there for a reason, and the impact on people and employment meant “there were very strong reasons to bring it back”.

“I am seriously considering about whether we should bring that back.”

Central banks in countries including Australia, the United States and Norway have dual mandates.

The National and ACT parties were quick to criticise Edmonds, with Finance Minister Nicola Willis calling the article “alarming”.

“Labour’s finance spokesperson has confirmed she wishes to return to the monetary policy framework experiment that resulted in New Zealand’s highest period of inflation in recent history,” Willis says.

Willis says what Edmonds wants is higher inflation. “Inflation is the number one driver of the cost of living and I think it is entirely hypocritical to say you care about the cost of living but you’re prepared to tolerate higher inflation.”

The Government stands by its position, she says.

“We must control the cost of living with a clear inflation busting target and that stable inflation supports job creation and employment growth.”

ACT Leader David Seymour says Edmonds' “déjà vu economics are a recipe for rent hikes and a debt crisis”.

He says Edmonds “teasing the return of the dual mandate” was, in other words, taking the RBNZ’s eye off the inflation ball.

“Grant Robertson already tried this, and New Zealanders remember what came next: inflation spiked as high as 7.3%.”

“Barbara Edmonds is running on déjà vu economics," Seymour says.

In response, Edmonds, on Tuesday, told reporters: “If they want us to also tolerate higher unemployment when there was a chance for the Reserve Bank to hypothetically, possibly drop interest rates faster, then I think they’ve got the wrong end of the stick.”

Asked whether she would tolerate slightly higher inflation in the interest of having lower unemployment, Edmonds says “for us, the unemployment rate being at the rate it is, with 165,000 people wanting to look for work, that is not a situation that we want for Kiwis who are struggling to find work”.

“What we’re saying is we did have a dual mandate, like many countries in the world. We think their removal of that just for politics’ sake was not in the best interest of Kiwis given the unemployment rate we’re seeing now.”

'A little bit destabilising'

The Reserve Bank is currently tasked with maintaining inflation between 1% and 3% and it specifically targets 2%. The latest annual inflation rate, as measured by Statistics NZ's consumers price index (CPI), hit 3.1% in the December quarter.

As for the unemployment rate, this increased in the December quarter to 5.4% - hitting a 10-year high. While the headline unemployment rate might make it look like the labour market is getting worse, economists have said dig a little deeper, and the data shows early signs of improvement.

Following February's Official Cash Rate review, Reserve Bank Governor Anna Breman, Assistant Governor Karen Silk and Chief Economist Paul Conway appeared in front of Parliament's Finance and Expenditure Committee to talk about the decision.

When asked by Green MP Ricardo Menéndez March if they would have done anything differently if they were still considering maximum sustainable employment, Conway said: "We still really take the labour market into consideration because it affects inflation."

"I do think that regular changes in our mandate do have an effect on how we set monetary policy," Conway said.

He said he didn't think it should be changed "too easily or too frequently" because he thought at the margin, it was "a little bit destabilising".